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Risk sharing with multiple indemnity environments

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  • Asimit, Alexandru V.
  • Boonen, Tim J.
  • Chi, Yichun
  • Chong, Wing Fung

Abstract

Optimal risk sharing arrangements have been substantially studied in the literature, from the aspects of generalizing objective functions, incorporating more business constraints, and investigating different optimality criteria. This paper proposes an insurance model with multiple risk environments. We study the case where the two agents are endowed with the Value-at-Risk or the Tail Value-at-Risk, or when both agents are risk-neutral but have heterogeneous beliefs regarding the underlying probability distribution. We show that layer-type indemnities, within each risk environment, are Pareto optimal, which may be environment-specific. From Pareto optimality, we get that the premium can be chosen in a given interval, and we propose to allocate the gains from risk sharing equally between the buyer and seller.

Suggested Citation

  • Asimit, Alexandru V. & Boonen, Tim J. & Chi, Yichun & Chong, Wing Fung, 2021. "Risk sharing with multiple indemnity environments," European Journal of Operational Research, Elsevier, vol. 295(2), pages 587-603.
    • Handle: RePEc:eee:ejores:v:295:y:2021:i:2:p:587-603
    DOI: 10.1016/j.ejor.2021.03.012
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    Cited by:

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    3. Claire Mouminoux & Christophe Dutang & Stéphane Loisel & Hansjoerg Albrecher, 2022. "On a Markovian Game Model for Competitive Insurance Pricing," Methodology and Computing in Applied Probability, Springer, vol. 24(2), pages 1061-1091, June.
    4. Felix-Benedikt Liebrich, 2021. "Risk sharing under heterogeneous beliefs without convexity," Papers 2108.05791, arXiv.org, revised May 2022.

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